Canadian petroleum producers and energy experts believe it will take months to bring crude prices back down to earth after a six-week liftoff, even after oil markets plummeted Wednesday following a ceasefire being unveiled in the Middle East war.

A drop of more than US$18 a barrel for benchmark U.S. oil prices was a “knee-jerk reaction” to the latest political development, but there are still important issues to clarify, said Al Salazar, vice-president of intelligence at energy analytics firm Enverus.

Markets have shifted into a higher price band since the start of the war in late February, and it’s unclear who controls the critical Strait of Hormuz and when shipments from the Persian Gulf can significantly ramp up.

SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.

There was an error, please provide a valid email address.

By signing up you consent to receive the above newsletter from Postmedia Network Inc.

A welcome email is on its way. If you don't see it, please check your junk folder.

The next issue of FP West: Energy Insider will soon be in your inbox.

We encountered an issue signing you up. Please try again

Interested in more newsletters? Browse here.

“Call it a repositioning,” Salazar said of Wednesday’s sharp price drop.

“It doesn’t take away from the fact that you still have physical shortages of oil in Asia and Europe . . . Pre-war normal is still maybe three to six months out.”

After previously vowing to bomb Iran “back to the stone ages” if it didn’t reach an agreement with the United States by Tuesday evening, President Donald Trump announced the countries had consented to a “double-sided” ceasefire.

The president said he would suspend attacks on Iran for two weeks while terms of the agreement are finalized, although there were already signs the accord is fragile.

Prices for U.S. benchmark West Texas Intermediate (WTI) crude, which shot up to more than $112 earlier this week, dropped quickly, closing Wednesday at $94.41 a barrel.

However, oil prices are still up more than 40 per cent since the end of February.

It will take time to sort out what the ceasefire means and how it will play out in the coming days, said Robert Johnston, director of energy and natural resources policy at the University of Calgary’s School of Public Policy.

Varcoe: 'Costs are going to go up’ — Trump talks, oil jumps to $111 and higher energy prices await consumers

Varcoe: 'Act urgently': A new recipe for getting big energy projects built quickly in Canada

Advertisement 1Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

“The markets are down but they’re still well above where they were before the war started. So the next downward leg would need to have a little bit more clarity around what’s really behind this deal,” said Johnston.

“This was a correction from a further escalation, but not yet a correction towards an end to the conflict.”

Since the war began, the Strait of Hormuz, the gateway to and from the Persian Gulf, has effectively been blocked by Iran, which has attacked tankers and other energy infrastructure in the region.

About 20 per cent of the world’s crude oil and liquified natural gas transits through the waterway to global customers. It’s estimated about 14 million barrels per day of oil and condensate were being blocked last month, prompting countries in the region to idle some output.

Encampment removed south of Calgary after complaints of threats, cars being chased or struck News

Encampment removed south of Calgary after complaints of threats, cars being chased or struck

Bell: Danielle Smith, don't blink — clamp down on bad Alberta drivers getting licenses Columnists

Bell: Danielle Smith, don't blink — clamp down on bad Alberta drivers getting licenses

Advertisement 2Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Braid: Another Conservative MP crosses; Liberals will have their majority Monday Columnists

Braid: Another Conservative MP crosses; Liberals will have their majority Monday

Calgary serial rape suspect Richard Mantha found guilty of sexually abusing three women, cleared on majority of charges Crime

Calgary serial rape suspect Richard Mantha found guilty of sexually abusing three women, cleared on majority of charges

These are Calgary's hottest neighbourhoods: Why some communities are 10 C warmer than others News

These are Calgary's hottest neighbourhoods: Why some communities are 10 C warmer than others

The U.S. Energy Information Administration (EIA) estimates Saudi Arabia, Kuwait, Iraq, Qatar, United Arab Emirates and Bahrain shut in a combined 7.5 million barrels per day of oil production in March.

Yet, it’s unclear how the ceasefire will affect the future shipments through the strait, which touches Iran to the north and Oman to the south, and if Iran will effectively be left in control of the passage — and able to charge tolls to tankers.

On Wednesday afternoon, the Associated Press reported that Iran had closed the waterway again following attacks in Lebanon by Israel.

“I wouldn’t be surprised if these higher prices last well into next year,” added Johnston.

“The combination of the unresolved end game in the Gulf itself, and the need to refill inventories and attract new supply should keep prices higher.”

A report Wednesday by TD Securities said any normalization in global energy supply would be “measured in months, not weeks” and it expects global benchmark Brent crude at $90 a barrel will be the new normal for this year.

Earlier this week, the new U.S. Information Energy Administration’s short-term energy outlook forecast WTI oil prices will average $87 a barrel in 2026, before dipping to $72 next year.

“Once flows through the Strait of Hormuz resume, we assume it will take time to resolve the backlog and disruption to oil tanker routes and trade flows and that the potential for future disruptions will remain at risk and create a premium in the oil price,” the EIA report stated.

For Canadian oil and gas producers, the nearly six weeks since the war began have reshaped the sector’s outlook, and its impact will be seen in rising cash flow levels.

Surge Energy CEO Paul Colborne noted that entering the year, markets were focused on surplus oil supplies exceeding demand, and prices were mired around $60 a barrel. He expects strong prices throughout 2026, even with news of a ceasefire and Wednesday’s plunge in prices.

“I don’t think this changes one thing,” said Colborne. “It does feel like a higher-for-longer scenario.”

At Calgary-based Surge, every US$1 per barrel change in the WTI crude price throughout the year boosts its cash flow by CDN$8 million.

The company has created options to possibly expand its $150-million annual capital budget, but at this stage, “we’re just kind of watching and waiting and seeing how it shakes out,” he added.

Given the extreme volatility in oil prices, most producers are reluctant to revise spending plans and drilling programs for 2026. The seasonal spring break-up period will give the sector time to assess the situation.

“People are being cautious,” said Tristan Goodman, president of the Explorers and Producers Association of Canada.

“They’re looking for short-term opportunities, but they’re not pivoting in a major way, given the current price, simply because it’s a bit unstable.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

© Calgary Herald